We are a couple & are 60. Both working currently, healthy & plan on working for years to come. Have an IRA with a financial company in the amount of $300K. We are both contributing to our 401K's but only 2K currently in both.

The issue is that we have been in foreclosure & appears the bank will not do a loan mod, so will have to move out in a few months & a short sale will ensue. We also have a 2nd mortgage which we are current in.

We are contemplating purchasing a townhouse for $180K cash & deplete the IRA. Our monthly fees to include maintenance, HOA & insurance will be $500/month, but we will own it.

Our financial advisor has suggested we simply rent & purchase in a few years with a mortgage as this will be devastating to our retirement fund. We understand we will be paying taxes on the $180k of probably 20%.

Renting will be $1500/month & at a minimum will spend $36K in 2 years before any company will give us a mortgage loan.

Any suggestions will greatly appreciated! Thanks!!!

Sat Aug 13, 2016 2:28 pm

oldguySenior Member

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quote: We understand we will be paying taxes on the $180k of probably 20%.

It will be more than that - at your income level (2 earners and no dependents), the fed & state tax on the $300k will be close to $95,000, leaving you with about $205,000 net. (The 20% that you speak of is only what the IRA holder withholds when you cash it out, you'll still owe the rest of the taxes in April.)

Your advisor is correct, cashing out the IRA would be a terrible move.

But why do you want a loan mod, why not bring your first mortgage up to date? Wouldn't that cost way less than $180,000? What are the terms of your current mortgage - amount, years, rate, payment?

Sat Aug 13, 2016 3:07 pm

Brettla16New Member

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quote:Originally posted by oldguy

quote: We understand we will be paying taxes on the $180k of probably 20%.

It will be more than that - at your income level (2 earners and no dependents), the fed & state tax on the $300k will be close to $95,000, leaving you with about $205,000 net. (The 20% that you speak of is only what the IRA holder withholds when you cash it out, you'll still owe the rest of the taxes in April.)

Your advisor is correct, cashing out the IRA would be a terrible move.
But why do you want a loan mod, why not bring your first mortgage up to date? Wouldn't that cost way less than $180,000? What are the terms of your current mortgage - amount, years, rate, payment?

Basically, after everything is said and done, we owe 360k on the house. It is worth 230k. We have two mortgages on the house, we stopped paying for one of them a few years ago due to my husband being unemployed. The other mortgage is current.

If we do purchase another property, could the bank come after us and put a judgment against our new property?

Sat Aug 13, 2016 3:40 pm

oldguySenior Member

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quote: If we do purchase another property, could the bank come after us and put a judgment against our new property?

Probably, after all, the bank loaned $360k to you, obviously they would like to be repaid.
The first part of a "short sale" is the discovery process, the lenders/creditors list all of your assets, calculate the 'shortfall' (in your case about $360k minus the $230k, ie $130k). Then all creditors must agree to 'excuse' you from the short-fall. But if you show up with a bunch of cash (from the IRA) or another piece of real estate, they will disallow the short sale.

Maybe it would be better to use a small part of your IRA money to bring the first mortgage current and then stay where you are. In about 8 or 10 year, the $230k house could be worth about $375k (typical), and the loans will be in the $300k range. Your current payment is probably about $2500/m - keep plugging along with that - and no short sale, no foreclosure, no bk - your credit will look pretty good then.

quote: Our monthly fees to include maintenance, HOA & insurance will be $500/month, but we will own it.

That's $6000 per year, the insurance on our $400,000 house is about $400/yr - and we mow our own grass - are you sure that you want to spent $6000 for that??